ARMENIA AND ARMENIANHOOD IN THE 21-ST CENTURY

Speech by Dr. Tigran Sargsyan
Chairman of the Central Bank of Armenia

Prepared for presentation at the "Pro Armenia" conference
Paris, France
31 January - 01 February, 2003

1. World economic trends in the era of globalization

The development of the world economy is determined by two core trends that are in a complex ambiguous contradiction. The globalization goes faster, on the one hand, and the regional integration does so, on the other.

The qualitative, revolutionary changes in technique and technology, transport and communications, and information base of the economy of the last decade underlie the processes of globalization. The innovative branches of the economy, requiring high intellectual potential, are brought to the forefront.

Another factor of the globalization is a surging international trade exchange, including the results of scientific and technical research. Growing from simply beneficial market channels for goods and services, the international economic links take a paramount shape of existence of all components of the world economy. In other words, none of the national economies could develop without an active involvement in the world economic processes. A major objective of any country now covers the determination and support of the level of external economic activeness. Not less important is the role of a country's economic policy and the creation of the set of requisites for the growth of "export expansion". This is a must in the way of achieving a stable position in the era of globalization.

To my opinion, the globalization to date has not yet determined and pointed out any monopolistic advantages of any one of the social and political arrangement models existing in the contemporary world, in view of the processes that bring challenge to different nations in the sphere of the economy.

The recent tendency to a wider regional cooperation on new scales, unknown before, markedly served a response to the process of globalization.

Many countries that seek to avoid adverse effects peculiar to the globalization view regional integration unions as a more efficient way to an improved competitive power in the global context.

Does Armenia have a chance of entering a competition environment of globalization by way of glocalization processes, for which we understand seeking to intensified regional integration processes aimed at creating new regional entities, able to compete in the global environment?

The situation in Transcaucasia is that most of the countries of the region are involved in either national or territorial conflicts, which do not have simple and momentary solutions, and would bear a long-term character. It is apparent that, considering the given situation, each of the countries of Transcaucasia will conduct its economic policy. This would lead to a notable slowdown of natural integration processes, the intra-regional trade turnover would not a long time be a priority in export. And the fact is that none of the Transcaucasian countries stand nowadays as an initiator for glocal projects carried out in the region. Thus, it is now obvious that Georgia is not ambitious in developing its own strategy and, even more so, jointly with the regional partners. While the policy Georgia conducts is channeled to a rather prompt integration to any alliance and building into a strategy of a more powerful partner. Azerbaijan has to realize its strategy within the framework of a Turkey-Azerbaijan relationship.

Armenia, supposedly, is in a more complicated position as it could not fit in other strategies that would take Armenia's interests into account, given both objective and subjective foundations. First and foremost, this is connected to the fact that Armenia cannot be a carrier of value criteria of other global players. And this implies that the principal issue is the problem to develop own strategy that would consider also the peculiarities of the Caucasus Region.

2. Macroeconomic developments in Armenia

Macroeconomic developments in Armenia are directly connected to both the initial conditions of transition, and the speed and scope of reforms.

Compared to the other countries of the former USSR, Armenia could boast higher productivity in manufacturing, higher proportion of educated employees, and relatively higher share of industrial workforce.

However, remoteness from established market economies, scarcity of natural resources, the dire consequences of 1988 devastating earthquake, the blockade of main economic arteries, the insufficient independence of the energetic system hampered the process of getting over the initial difficulties with minimal losses. An abrupt breakup of economic ties with the former USSR countries completed the list of unfavorable preliminary conditions. In 1990-1993 the Armenian economy slowed down nearly by 57%*. A significant decrease in revenues and upturn in prices, which grew nearly by 5000 times in 1990-1994, brought the population to an extreme level of poverty.

These developments made it imperative to implement rapid and large-scale reforms. Adoption of new laws promoted development of the market economy.

In 1991 Armenia was the first CIS country to privatize its agriculture. About 87% of agricultural land has been transferred to private ownership by late 1993. In 1995 the share of the private sector in GDP made up 45%. The reforms involved the banking and financial sectors as well, and the share of the government in the banking system gradually decreased. Gradual relaxation and further liberalization of current account and the capital transactions, as well as adoption of the flexible exchange rate regime resulted in the stabilization of exchange rates.

A steady recovery in Armenia started in 1998. Since then GDP growth rates were sustained and inflation was considerably restrained. The monetary and fiscal policies played a decisive role in the process of macroeconomic stabilization. The consistent management of the aggregate demand and the good coordination between monetary and fiscal policies contributed to the drastic fall in inflation.

Since 1997, mostly through privatization policies, great attention was devoted to the problem of attracting investments to the private sector and to foreign direct investments. As Armenian domestic market is comparatively small, direct investments are mostly channeled to the export-oriented industries. The experience of a number of such enterprises proves the high efficiency and success of the investments made.

What are the results? Economic growth did not only stabilize, but also increased to 9.6% in 2001 and reached 12.5% in 2002. The inflation rate has been managed under 3% for several years now. A decrease in interest rates was observed since the beginning of 2000, when the yield on T-bills dropped from 57% at the end of 1999 to 15% at the end of 2002. A considerable decrease in the current account deficit may be considered as the most significant achievement of those years. In 2002 the current account deficit share in GDP was 6.9% due to an increase in exports and import substitution. The state budget deficit also has decreased to 2.6% in 2002 as opposed to 7.1% in 1995.

The quality and management of the external debt of Armenia are also quite important. Although the external debt has been increasing in absolute numbers, debt indicators have not exceeded the bounds considered as dangerous. In 2002 the external debt servicing capacity (i.e. external public debt to GDP ratio) amounted to 42.5%. The external debt liquidity (i.e. external debt service to exports ratio) amounted to 8.5%.

Of course, what so far has been done, was a necessity. Combined efforts led to an ability to provide stability and to ensure growth. But there are still issues pending. Despite the fact that economic growth exceeded 6% on average since 1994, the real GDP in 2002 still amounted to 73% of 1989. Though the key poverty indicators have improved in recent years, the level of poverty is still rather high, making 50.2% as of 2002. The level of extreme poverty is still 16.0%. This is mainly caused by a sharp decrease in revenues in the initial period of transition, unequal distribution of income and a large portion of shadow economy.

3. Armenia and Armenianhood (What to do?)

Ten years of independence - is it enough to successfully enter the international market system, occupy your own niche in global distribution of labor and ensure an adequate level of well-being of the country's population? The experience of both Armenia and the other countries in transition shows that the reforms could have been implemented a bit faster or better, but a qualitative leap does not occur whatever the case.

The countries and international organizations that assist us in building the society in their own resemblance, are only interested in maintaining stability and getting over the poverty in Armenia, and the programs suggested from the outside are directed to solution of these very problems. It is apparent that realization of these targets is a necessary, but yet insufficient condition for the further progress.

I think, the time has come to change "an agenda" of further development for both Armenia and Armenianhood.

The need to replace "Armenia-Spjurk" formulation by "Armenianhood-All the World", while not opposing them to each other, is getting impending. This replacement of the frame would enable to otherwise evaluate resources, formulate common targets and determine entities for their implementation. This also enables to foresee the path of the Armenianhood in the 21 century. In other words, it is a question of changing the economic-social model of co-existence, where the Government, as a nation self-organization model, is moving off to the background (while it strengthens its functions in the transition period). Not the territory and the state, but the transnational communication net is growing to be a basic factor of development.

It is apparent that the human capital and information are the main resources of development in the 21 century. Availability of these resources is connected neither to location, nor geopolitical situation in a separate country. Historically, in order to survive, Armenians have had to permanently increase their intellectual potential, and the fact of an existence of widely spread Armenian Diaspora might become a basic precondition for accumulation and transfer of information between Armenians. Stemming from this, an international positioning of Armenia might change from competitively the most weak to the most advantageous.

The objective of further development must be more ambitious as to achieve Armenians' well-being on a global scale. And the Armenia's government should take the main burden to realize this.

This implies that there is a need for a new ideological, legal, institutional and organizational structure. Thus, there may be possible, for example, to:

1. Create a single educational system for Armenianhood, including establishment of an All-Armenian University with instructorship constituting the best specialists from all over the world;
2. Shape a single information network for various areas, such as:
- innovatory-educational;
- commercial-industrial;
- cultural-historical;
3. Shape a worldwide commodity distribution network;
4. Consider in future establishing a network government to ensure protection of interests, rights and freedom of all citizens irrespective of their territorial registration.

Such a change in foreseeing the future would enable to seek a new approach to existing issues of building the Armenia-Diaspora relationship and designing further joint actions.

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